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For the full-year 2014, it’s trimmed its estimate for GDP growth to 2.6% from 2.7%.

But the group remains optimistic, citing “fading” fiscal headwinds that “can be stopped through balance sheet repair.” Plus, says BofA, that repair process is “well advanced,” which sets the stage for both stronger growth and low inflation.

“Inflation is likely to remain stuck close to 1% for an extended period of time,” Harris wrote. “Global pressures have faded as commodity markets cool and emerging markets slow down. There is abundant spare capacity in the U.S. and globally.”

“We are similarly optimistic on the global outlook,” Harris said. The bank expects “trend-like growth in 2014 as Europe slowly exits its recession and as the global manufacturing cycle picks up. As in the U.S., inflation is likely to remain quite subdued.”

As for how inflation can drop as growth rises, he notes that inflation “normally doesn’t accelerate until growth has been strong enough for long enough to create capacity pressure. Indeed, at the beginning of economic recoveries, inflation tends to fall even though growth is very strong.”

Furthermore, in the current cycle, structural headwinds and policy shocks have “delayed a normal recovery,” says Harris. “Hence, four years into the recovery, there is still spare capacity and disinflationary pressure.”